Costas was outside and then inside IR35

outside and then inside IR35
outside and then inside IR35

Outside and Then Inside IR35

We look here at a small businessman who was outside and then inside IR35.

Costas is the only worker, shareholder and director of C Ltd and works through an agency for an end client.

He has been with the client seven years.

For the first three years all the contracts were for specific projects with 6-monthly renewals.

Substitution Clause

He then went onto annual contracts for the next four years. However, it wasn‘t for specific projects and he did various tasks as wanted by the client.

There was a substitution clause in his contract. However, the client had a right to turn these substitutes down although they had the same skills as Costas.

The end client had not very much control over how Costas worked.

Standard Hours

The contract had a standard number of hours but the hours he actually worked sometimes varied.

All the work was done at the client‘s premises for security reasons. Costas gave progress reports to the client especially if he was late.

He got no employment benefits. He didn‘t need to ask permission to take a holiday but told the client out of courtesy.

Why Costas was outside and then inside IR35

Personal Service

There was a substitution clause. However, the client had the right to turn it down providing a weak pointer to IR35 applying.

Control in the 1st 3 years

The client controlled Costas‘s work but that was because they took him on to do specific projects so this is IR35 neutral.

The client controlled where he worked. However, that was because of special factors so that is neutral too.

Costas had control over when he worked. Because he had specialised skills the client didn‘t control how he worked and so IR35 did not apply here.

Control in the next 4 years

The contracts changed as did Costas‘s working arrangements as he became a resource that the client could use wherever they saw fit. So this level of control was a pointer to IR35 applying.

Financial Risk

C Ltd had no financial risk so this is a pointer towards IR35.


The parties to the arrangement stayed the same throughout but the working arrangement changed. So Costas was outside and then inside IR35.

IT Contractor Comment

This seems a bit strange.

The only real difference between the before and after was that Costas was working on a particular project and afterwards he was working on different pieces of work.

How does that take him from being a proper contractor to a ‘disguised employee‘?

Employees can work on specific projects and they can be used as a resource by the company that can be given different tasks.

So, what‘s the difference?

When employees are working on specific projects does that make them ‘disguised contractors‘?

Should they then be forced by the taxman to work through a Limited Company and claim expenses and pay themselves dividends?

That‘s the logical conclusion.

I must say that the Oracle at Delphi couldn‘t decipher IR35 and how HMRC see it.